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1. Void and Illegal Agreement

   Dr. ZahiraMohdIshan FEP, UPM Dr. Zahira Mohd. Ishan, FEP, UPM
2. Introduction an agreement not enforceable by law is said to be void: s.2(g) An agreement enforceable by law is a contract: s.2(h) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable: s.2(j) Dr. Zahira Mohd. Ishan, FEP, UPM
3. Dr. Zahira Mohd. Ishan, FEP, UPM
4. Section 24: Unlawful Agreement The consideration or object of an agreement is lawful, unless: (a) it is forbidden by a law; (b) it is of such a nature that if permitted, it would defeat any law; (c) it is fraudulent; (d) it involves or implies injury to the person or property of another; or (e) the court regards it as immoral, or opposed to public policy. Chung Khiaw Bank Ltd v. Hotel Rasa SayangSdnBhd[1990] 1 MLJ 356: “Paragraphs (a), (b) and (e) of s. 24 of the Contracts Act 1950 should be read disjunctively. Section 24 of the Contracts Act 1950 is explicit and that if an agreement is forbidden by law or prohibited by law or of such a nature that it would defeat the law, that agreement is unlawful and void. If agreement is prohibited by law or forbidden by law or of such a nature that it would defeat the law then the question of public policy does not arise at all. The question of public policy arises only in para (e) where the court considers an agreement to be immoral or otherwise opposed to public policy." Dr. Zahira Mohd. Ishan, FEP, UPM
5. Section 24: Unlawful Agreement Abdul MalikIshak in ABDA Airfreight SdnBhd v. SistemPenerbangan Malaysia Bhd: “the list of illegal contracts can never be closed. It includes, inter alia, contracts to commit crimes, torts or fraud, contracts to defraud the revenue, contracts affecting public safety or the administration of justice or the incorruptibility of public officers, contracts in regard to restraint of trade and contracts that are sexually immoral.” Dr. Zahira Mohd. Ishan, FEP, UPM
6. Section 24: Unlawful Agreement The consideration or object of an agreement is lawful, unless: (a) it is forbidden by a law;   (b) it is of such a nature that if permitted, it would defeat any law; ~s. 31: wagering agreement : forbidden by law. Dr. Zahira Mohd. Ishan, FEP, UPM
7. Hee Cheng v Krishnan: S&P of house on TOL land. P request specific performance / damages when D breached to buy the house. Rule 41, Land Rule 1940: “…no TOL is transferable”. Court used s. 24(b) “it defeat the law”,& silent on its different from s. 24(a). Other cases on TOL: Papoo v Veeriah; Murugesan v Krishnasamy & Anor:P bought TOL land from D who had applied for permanent title. When application was unsuccessful, P claimed the return of $ paid. Menaka v LumKum Chum: A, registered moneylender lent $ to R on security of a charge in her own name, not her firm. Held: void because contravene s.15 of Moneylender Ordinance 1951. Chung Kiaw Bank Ltd v Hotel Rasa SayangSdnBhd & Anor [1990]: loan given by A in contravention of s.67 of Companies Act 1965. AmfinanceBhd v KT Steel SdnBhd & Ors [2008]: lease agreement was void as against Bill of Sale Act 1950 & BAFIA. PalaniappaChettiar v ArunasalamChettiar T Bariam Singh v Peg PentadbirPesakaM’sia (Ad of Estate of DatukFoo Say Lee) Harun b Taib v KhorPeng Song; Amalgamated Steel Mills Bhd v Ingeback ~refer to other cases in Beatrix Vohrah & Wu Min Aun book Dr. Zahira Mohd. Ishan, FEP, UPM
8. (c) it is fraudulent Illustrations under s.24: (e) A, B and C enter into an agreement for the division among them of gains acquired, or to be acquired, by them by fraud. The agreement is void, as its object is unlawful. (g) A, being agent for a landed proprietor, agrees for money, without the knowledge of his principal, to obtain for B a lease of land belonging to his principal. The agreement between A and B is void, as it implies a fraud by concealment, by A, on his principal. (~secret profit) (d) it involves or implies injury to the person or property of another; or SyedAhamedAlhabsheev PutehbinteSabtu (1922) Mohd Ali Jahn b YusopSahibjahn & Anor v Zalehabt Mat Zin & Anor [1995] Dr. Zahira Mohd. Ishan, FEP, UPM
9. Mohd Ali Jahn b YusopSahibjahn & Anor v Zalehabt Mat Zin & Anor [1995] In 1948, the plaintiffs’ father, who was registered as guardian in the title of a piece of land, sold the said land to the defendants’ father By this agreement the plaintiffs’ father guaranteed that the plaintiffs, who were minors then, would execute the transfer of the land to the purchaser when they attained the age of majority. Title to the land and possession thereof were then given to the purchaser, whose family, including the defendants, started and continued to occupy the land until this day. Quit rent was paid by the purchaser's family until 1990 and by the plaintiffs as well since 1984. Held: Minors contract is void; court will protect minor’s interest; as guardian failed to seek leave of a Court or a Judge in order to deal with the land, the sale is void & the agreement therefore is unenforceable. Dr. Zahira Mohd. Ishan, FEP, UPM
10. the court regards it as immoral, or opposed to public policy. Immorality: ~ Sexual immorality is treated as a head of public policy under common law. Pearce v Brooks [1861]: contract of hire of vehicle for purpose of prostitution. ~ In M’sia, immorality is not merely sexual immorality. Aroomogum Chitty v Lim Ah Hang : $ lent on promissory note for purpose of running a brothel was held not recoverable. Illustrations under s.24: (j) A, who is B' s advocate, promises to exercise his influence, as such, with B in favour of C, and C promises to pay $1,000 to A. The agreement is void, because it is immoral. Dr. Zahira Mohd. Ishan, FEP, UPM
11. Contract that against public policy: if the contract tends to promote breach of the law, of the policy behind a law or tend to harm the state or its citizens. ‘Harmful’ depends on circumstances of case. Abdul MalikIshak in ABDA Airfreight SdnBhd v. SistemPenerbangan Malaysia Bhd: “in respect of contracts which are regarded as immoral or against public policy, is worded widely and throws its net wider.” Dr. ZahiraMohd. Ishan, FEP, UPM
12. Contract that against public policy: whether the words “public policy” are co-extensive with the concept as understood at common law. Common law concept of public policy Dr. ZahiraMohd. Ishan, FEP, UPM
13. In Theresa Chong v Kin Khoon & Co, the Federal Court adopted the position that section 24(e) was co-extensive with the concept as understood at Common Law. : A contract entered into by an unregistered remisier in contravention of the rules and bye-laws of the Stock Exchange ~ Not being registered as a remisier is not contrary to public policy because the bye-laws of the Stock Exchange were the bye-laws of a private body. Hamzah Bin Musa v Fatimah ZaharahBinti Mohamed Jalal, it was held that an undertaking given by the defendant to his ex-wife that he would not divorce her and that if he did so, he would pay her $5,000 was not immoral or opposed to public policy. Dr. ZahiraMohd. Ishan, FEP, UPM
14. Departure from Theresa’s case approach: DatukOngKeeHui v SinyiumAnakMutit ; Amalgamated Steel Mills Bhd v Ingeback; MAA Holdings v Ng SiewWah Koid Hong Keat v RhinaBhar Ahmad Sazali b Annuar v PembinaanKuantitiSdnBhd[2008] KondapuramRaghuram v SooPeng @ Yew SooPeng [2006] 7 MLJ 510 Dr. Zahira Mohd. Ishan, FEP, UPM
15. Koid Hong Keat v RhinaBhar, the defendant, an advocate and solicitor, applied to strike out the plaintiff’s action pursuant to an alleged oral agreement by the former to be paid 10% of the fees collected upon the conclusion of each case introduced by the plaintiff. The defendant argued that the agreement was contrary to public policy. But the Court held the agreement was valid, despite the argument and contention that the Plaintiff was a tout and that touting was contrary to public policy. Wan Adnan Ismail J in the Koid Hong Keat case: “Further as what is injurious to public welfare in England may not necessarily be so in Malaysia and vice versa. What is and what is not injurious to public welfare in Malaysia must be decided in the Malaysian context.” Dr. Zahira Mohd. Ishan, FEP, UPM
16. Ahmad Sazali b Annuar v PembinaanKuantitiSdnBhd[2008] The defendant company is a contractor who successfully tendered for a multi million ringgit government project. The plaintiff claims that he is owed a balance RM540,000 by the defendant for successfully procuring the renewal of the Defendant’s Bumiputra Status Licence. The defendant has pleaded that the contract is illegal. In alternative, they have pleaded failure of consideration based on the argument that someone else had actually done the work of lobbying on their behalf. Held: “The Malaysian Anti-Corruption Commission Act 2009 criminalizes acceptance of gratification on the part of government officers for an act in relation to the affairs of their department. However, the agreement in question does not specifically require the plaintiff to bribe government officials in order obtain renewal of the Bumiputra Status Licence of the defendant. It must also be noted that there is also no law that criminalizes lobbying of government officers unless gratification or reward is offered on a quid pro quo basis. In the premises, the agreement in question may not be caught by section 24(a) or (b) of the Contracts Act 1950. However, as observed by Abdul MalikIshak J in the above mentioned case, section 24(e) is worded widely. It provides that the object or consideration of an agreement is unlawful if it is against public policy.” The court agrees that the contract was against public policy. Dr. Zahira Mohd. Ishan, FEP, UPM
17. Ahmad Sazali b Annuar v PembinaanKuantitiSdnBhd[2008] (con’t) The “object” of the agreement is to renew a Bumiputra Status Licence which had expired. The Bumiputra Status Licence belonged to the defendant. The government agency that is charged with determining the Bumiputra Status Licence is the PusatKhidmatKontraktor. The plaintiff is a third party. He revealed during cross examination that the defendant company was run by a non-Bumiputra and that was the reason they had difficulty in renewing the Bumiputra Status Licence. He also admitted that he was actually helping them to get the Bumiputra Status Licence when they were not entitled to it. For his trouble, the plaintiff was promised one percent of the contract price of the project in question or a whopping RM600,000 from the defendant. However, he refused to reveal the name of the PKK officers he dealt with or what he had done precisely to obtain the renewal of the Bumiputra Status Licence of the defendant. The plaintiff also told the court that the defendant company would not have been awarded the school project unless it possessed a Bumiputra Status Licence. In fact the defendant did not deny this assertion. Therefore, with respect to the parties who had thought it proper to draw up the agreement in question, the court should not give its seal of approval by allowing the enforcement of it. To hold otherwise would only encourage unabashed and unmitigated wheeling and dealing of the dubious sort. In conclusion, as the agreement in question is against public policy, it is rendered void and unenforceable. I shall therefore dismiss the claim of the plaintiff with costs of RM25,000. Dr. Zahira Mohd. Ishan, FEP, UPM
18. KondapuramRaghuram v SooPeng @ Yew SooPeng[2006] 7 MLJ 510. The petitioner had presented a section 181 Companies Act 1965 petition against the respondents. In opposing the petition, the respondents alleged that the petitioner had parked his shares with the 2nd respondent in order to obtain untrue ‘Bumiputra status’ for the company from PusatKhidmatKontraktor (PKK) and procure special contracts. The respondents argued that petitioner planned to circumvent the New Economic Policy which called for Bumiputra participation in businesses. Ramly Ali J upheld the objection, holding that the petitioner’s act tantamount to an improper act & certainly one which is contrary to public policy. Dr. Zahira Mohd. Ishan, FEP, UPM
19. Separate bases on which contract may offend public policy in Malaysia: Contracts prejudicial to the public service eg; Sale of public appointments, offices & honours leads to corruption in public life. ~Illustrations under s.24: (f) A promises to obtain for B an employment in the public service, and B promises to pay $1,000 to A. The agreement is void, as the consideration for it is unlawful. ii) Contracts that impede the course of justice ~Illustrations under s.24: (h) A promises B to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful. Dr. Zahira Mohd. Ishan, FEP, UPM
20. iii) Contracts against the interests of the state eg Agreement to trade with enemy alien during war; contract intended to breach the laws of foreign country which M’sia is friendly Foster v Driscoll; Regazzono v KC Sethia iv) Contracts prejudicial to the freedom & stability of marriage ~ discourange acts that weaken marriage. s. 27 CA declares such agreement as void. ~ also against marriage brokerage: arranging marriage should not be the subject of financial profit Khem Singh v Arokh Singh; AlangKangkong v P. Ibrahim Dr. Zahira Mohd. Ishan, FEP, UPM
21. Contract in Restrait of Trade (RoT) s.28 : “Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void”. ~ RoT cannot be enforced & regarded as void not illegal. ~s. 28 is different from English law Wrigglesworth v Anthony Wilson: P & D agreed that D was restrained from practising as advocate & solicitor within 5 miles of Kota Bahru town for period of 2 years after the termination of his service contract with P. D breached. Held: the restraint void. Dr. Zahira Mohd. Ishan, FEP, UPM
22. ~s.28: recognised 3 exceptions to the general rule: Exception 1 Saving of agreement not to carry on business of which goodwill is sold; One who sells the goodwill of a business may agree with the buyer to refrain carrying on a similar business, within specified local limits, so long as the buyer,or any person deriving title to the goodwill from him, carries on a like business therein: Provided that such limits appear to the court reasonable, regard being had to the nature of the business. Exception 2 of agreement between partners prior to dissolution; Partners may, upon or in anticipation of a dissolution of the partnership, agree that some or all ofthem will not carry on a business similar to that of the partnership within such local limits as are referred to in exception 1. Exception 3 or during continuance of partnership. Partners may agree that some one or all of them will not carry on any business, other than that of the partnership, during the continuance of the partnership. Dr. Zahira Mohd. Ishan, FEP, UPM
23. CONSEQUENCES OF ILLEGALITY: s. 66:“When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it or to make compensation for it, to the person from whom he received it.” ~ Restitution is possible if the illegality is not known to the party seeking it. If one of the parties is aware of the illegality, he alone will be disqualified from invoking s.66. Ahmad b. Udoh & Anor v Ng AikChong: R leased padi land from A for 6 years & $1500 was paid therein. This agreement contravened s.3(1) of PCO. A then disallowed R to till the land & R claimed the return of the $. Held: both were ignorant of the illegality at the time of executing the agreement, s.66 would apply. Menaka v LumKumChum:contract was discovered ‘void’ only after the proceedings had been started. YeapMooi v Chu Chin Chua & Ors: only one party unaware of illegality, she only can recover her money (innocently depositing $). Dr. Zahira Mohd. Ishan, FEP, UPM
24. Q & A Dr. Zahira Mohd. Ishan, FEP, UPM